The demand for overseas holidays typically increases in economic upturns and decreases in economic downturns.The best economic explanation for this is a positive

A)

Price elasticity of demand

B)

Cross elasticity of demand

C)

Income elasticity of demand

D)

Price elasticity of supply

Question 2

The level of unemployment in an economy would most likely be at its highest in which phase of the business cycle?

A)

Peak

B)

Recession

C)

Trough

D)

Recovery

Question 3

If an economy is above its full employment level, then one action the government may take to remove an inflation gap is to

A)

Increase government spending

B)

Lower taxation

C)

Lower the cash rate

D)

Decrease government spending

Question 4

Consider the aggregate demand and supply model shown in the diagram below where AD₁ and AS₁ are the original curves, and AD₂ and AS₂ are the new curves.The change in aggregate supply from AS₁ to AS₂ would most likely be caused by a(n)

A)

Increase in business taxes

B)

Decrease in energy costs

C)

Decrease in net exports

D)

Decrease in consumption spending

Question 5

Consider an economy that is operating below full employment and with low inflation.Which of the following measures might the central bank take to restore full employment?

A)

Decrease the cash rate by selling government bonds

B)

Increase the cash rate by selling government bonds

C)

Increase the cash rate by buying government bonds

D)

Decrease the cash rate by buying government bonds